Battery Power, a family owned battery store, began October with $10,500 cash.
Management forecasts that collections from credit customers will be $11,000 in October and $15,000 in November. The store is scheduled to receive $6,000 cash on a business note receivable in October. Projected cash payments include inventory purchases ($13,000 in October and $13,900 in November) and operating expenses ($3,000 each month).
Battery Power’s bank requires a $10,000 minimum balance in the store’s chequing account. At the end of any month when the account balance dips below $10,000, the bank automatically extends credit to the store in multiples of $1,000. Battery Power borrows as little as possible and pays back loans in quarterly instalments of $2,000 plus 4% interest on the entire unpaid principal. The first payment occurs three months after the loan.
Requirement
Prepare Battery Power’s cash budget for October and November.